Bosch Group to expand activities in Russia, says company’s Russia head

Robert Bosch Corp., the world’s largest car parts maker, wants to seize the opportunities available in Russia’s rapidly increasing car market by expanding its activities in Russia, Rene Schlegel, the head of the company’s business in Russia, told Modern Russia on the sidelines of last month’s St. Petersburg International Economic Forum.  

In an effort to tap a market that is expected to grow from its current 1.9 million car sales per year to 4 million in the coming years and thus to become Europe’s largest automotive market, several leading international carmakers such as Ford, GM, Renault, Hyundai, Daimler and Fiat have made significant investments in Russia over the past few years. Last month, Volkswagen, Europe’s largest car manufacturer, announced its intention to double its production capacities in the Russian Federation by expanding output at its Kaluga plant and signing an agreement with GAZ to assemble 110,000 Volkswagen and Skoda models per year at the Russian carmaker’s plant in Nizhny Novgorod.

Russia’s attractiveness for global car producers is due to not only the sheer size of its market, but also to a number of incentive measures for foreign companies to localize their production in the country, Schlegel said. These measures include so-called “Decree 166 agreements,” under which foreign car manufacturers can import components free of customs duties if they commit to producing at least 300,000 cars annually in Russia by 2015. The decree also states that an increasing part of the components used (30 percent by the fourth year of the agreement and 55 percent by the sixth year) must be manufactured locally, creating a strong incentive for international car parts manufacturers to settle in Russia as well. Continental, the leading German tire manufacturer, said earlier this month that it will invest €220 million ($325 million) in a tire plant in Kaluga, which is to begin operations in 2013, while French auto parts maker Valeo plans to open a new facility in Russia this year. 

According to Schlegel, Bosch is also considering a significant expansion of its activities in Russia, which offers the company a “good opportunity to show its strength in the automotive sector.” However, he also insisted on the company’s long tradition of working in Russia, where Bosch has been present since 1904 and employs nearly 2,500 staff in a wide range of activities including automotive technologies, manufacturing operations and power tools. Beyond the incentive measures put in place by the government, Schlegel stressed that producing in Russia also brings considerable advantages in terms of labor and logistical costs, adding that “the direct contact with manufacturers, retailers and clients allowed by this geographical proximity is also crucial to succeed in the Russian market.”   

The Russian authorities’ efforts to ease the conditions for doing business in Russia have also started to yield concrete results, Schlegel noted, emphasizing the improved functioning of commercial courts. “Thanks to the improvement of procedures before commercial courts, and also to the improved knowledge displayed by judges, companies are in a better situation to make sure their rights are respected. This is a very positive development.”   

Nevertheless, there is still much to be done to modernize Russia’s economy, with a specific need to focus on the effective implementation of announced reforms and projects, Schlegel insisted. Russian authorities should also make sure they correctly prioritize their initiatives. In this regard, Schlegel advised against the multiplication of special legal statuses and economic zones, even though these may entail certain advantages for companies such as tax exemptions. In his view, what manufacturing companies in Russia need most are skilled personnel, specifically engineers and technicians, as well as a favorable and equal tax environment allowing Oblasts (regions) and cities to compete in these core areas. Improving the quality of Russia’s education and training system, and through this Russia’s human resource base, is therefore one of the main priorities Russian authorities should focus on. 

Rene Schlegel is the Bosch Group representative in Russia, Ukraine, Belarus and Kazakhstan, and president of the supervisory board of Robert Bosch OOO (Moscow). Schlegel has worked for Bosch Group since 1986, with a focus on Eastern Europe and Russia since the late 1990s. Prior to this, he held various positions in Switzerland and Latin America. A Swiss national born in Lucerne, he holds an MBA from the University of Chicago and an Advanced Management Program diploma from the University of Oxford.